Principles Of Accounts 2019 Jamb Examination

The primary rule governing the recording of financial data in the ledger is the Double Entry Principle. This principle dictates that every transaction affects at least two accounts, with one being debited and the other credited. While source documents provide the evidence of a transaction and accounting concepts provide the framework, the physical act of posting to the ledger is strictly guided by the duality of the double-entry system to ensure the accounting equation remains balanced.

In double-entry bookkeeping, we identify the accounts affected by the transaction. Rent is an expense account, and according to the rules of accounting, an increase in an expense is recorded as a debit. The payment was made by cheque, which affects the Bank account. Since the bank balance (an asset) is decreasing, it must be credited. Therefore, the Rent account is debited to show the cost incurred, and the Bank account is credited to show the outflow of funds.

The ledger is known as the book of final entry. It consists of a collection of accounts where transactions are classified and summarised. Each specific account within the ledger (like the Sales Account or Purchases Account) contains all transactions belonging to that specific class. This allows for the tracking of balances for each individual financial category over a specific period.

The double-entry system provides a comprehensive and systematic record of all financial transactions. Because it records both aspects of every transaction (debit and credit), it allows for the preparation of a trial balance to check mathematical accuracy. This structured data makes it significantly easier to prepare final accounts, such as the Profit and Loss account and the Balance Sheet, ensuring that the financial position and performance are accurately reflected.

In financial accounting, accounts are broadly classified into two main categories: Personal and Impersonal. Personal accounts are those relating to individuals, firms, or companies. Impersonal accounts are divided into Real accounts (relating to tangible or intangible assets) and Nominal accounts (relating to expenses, losses, incomes, and gains). This classification helps in applying the specific rules of debit and credit correctly.

When goods are purchased for resale on credit, two accounts are involved: the Purchases account and the Supplier's account (Tosanwumi International). According to the rules of double entry, the Purchases account is debited because it represents an expense or an increase in stock available for sale. Since the transaction is on credit, the Supplier's account is credited to reflect the new liability (money owed) to Tosanwumi International.

Wages are considered a direct expense because they are typically paid to factory workers or staff directly involved in the production of goods or the conversion of raw materials. In accounting practice, direct expenses are charged to the Trading Account to determine the Gross Profit. In contrast, salaries (paid to office staff) are considered indirect expenses and are charged to the Profit and Loss Account.

To find the Gross Profit as a percentage of sales (also known as the Gross Profit Margin), we use the following formula:\[\text{Gross Profit Percentage} = \left( \frac{\text{Gross Profit}}{\text{Sales}} \right) \times 100\]Substituting the given values:\[\text{Gross Profit Percentage} = \left( \frac{63,000}{233,000} \right) \times 100\]\[\text{Gross Profit Percentage} = 0.270386... \times 100\]\[\text{Gross Profit Percentage} \approx 27.0\%\]This ratio indicates that for every ₦100 of sales, the company retains ₦27.0 after covering the direct costs of the goods sold.

To calculate the net profit as a percentage of expenses, we first need to determine the total amount of overhead expenses.
Step 1: Sum the expenses:\[\text{Total Expenses} = 16,800 + 15,000 + 6,200 = 38,000\]Step 2: Apply the percentage formula:\[\text{Percentage} = \left( \frac{\text{Net Profit}}{\text{Total Expenses}} \right) \times 100\]Substituting the values:\[\text{Percentage} = \left( \frac{25,000}{38,000} \right) \times 100\]\[\text{Percentage} = 0.65789... \times 100\]\[\text{Percentage} \approx 65.7\%\]This means the net profit earned is 65.7% of the total overhead costs incurred during the period.

Step 1: Calculate the Cost of Goods Sold (COGS):\[\text{COGS} = \text{Opening Stock} + \text{Purchases} - \text{Closing Stock}\]\[\text{COGS} = 7,000 + 60,000 - 12,000 = 55,000\]Step 2: Understand the relationship between Margin and Markup. A margin of 33 \( \frac{1}{3} \) % is equivalent to \( \frac{1}{3} \) of the Selling Price. This means the Cost must be the remaining \( \frac{2}{3} \) of the Selling Price. Alternatively, a margin of 1/3 is equivalent to a markup of 50% (or 1/2) on cost.
Step 3: Calculate Sales:\[\text{Sales} = \frac{\text{COGS}}{1 - \text{Margin}}\]\[\text{Sales} = \frac{55,000}{1 - \frac{1}{3}} = \frac{55,000}{\frac{2}{3}}\]\[\text{Sales} = 55,000 \times \frac{3}{2} = 82,500\]Therefore, the total sales for the period is ₦82,500.